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Interpreting a warranty claim exclusion

In the vast majority of corporate acquisitions, the parties will give contractual warranties to each other. Often, the warrantor’s liability will be limited or excluded by reference to a contractual cut-off, or a long-stop date, by which any warranty claim must be notified to the warrantor if it is to be allowed to proceed. The recent case of Nobahar-Cookson v The Hut Group [1] concerned the correct interpretation of such an exclusion. Daniel Newbound explains.

Warranty claim

The seller’s warranties within the share purchase agreement in this case required the buyer to notify the seller of any warranty claim “within 20 Business Days after becoming aware of the matter”. When the buyer sought to bring a warranty claim, a dispute arose as to whether it was in time. The question was crucial because, if it was not, the seller’s liability was excluded. The Court of Appeal had to determine whether the phrase “aware of the matter” meant: (a) aware of the facts giving rise to the potential claim themselves, even if unaware that those facts might give rise to a claim; (b) aware that there might be a claim; or (c) aware of the claim per se.

Correct approach

As with other recent cases [2], the starting point in this interpretation exercise was the wording of the contract itself. Giving the lead judgment, Briggs LJ acknowledged that exclusion clauses inhibit or detract from important obligations or remedies and, as such, may be construed narrowly because the parties are not lightly to be taken to have intended to restrict their rights or remedies in the absence of clear words to that effect. In this particular case, he concluded that the wording of the exclusion was by no means clear enough to preclude consideration of other factors and aides to interpretation, such as consideration of the purpose of the clause, commerciality and the contra proferentum principle [3].

The Court of Appeal considered that to interpret the clause as meaning that time started running from the moment the buyer was aware there might be a claim would be so open-ended and uncertain as to be entirely uncommercial. That possible interpretation was therefore rejected.

The court also considered that the purpose of the clause was to prevent the buyer from pursuing claims which it had “kept up its sleeve” [4] and that that purpose was better served by an interpretation which focussed on awareness of the claim rather than awareness merely of the facts.

Interpretation (c) was therefore found to be correct.

Practical implications

This case does not make any new law, but it highlights the following legal and practical points to note:

It is essential when commencing a warranty claim (or indeed any legal claim or action which is time-limited) to comply strictly with any contractual notice provisions.

The starting point in any contractual interpretation exercise should always be the natural meaning of the language itself.

Where there is ambiguity in the meaning, the court may consider other factors. These can include the background facts, context, and underlying purpose of the provision in question; commercial common sense; and legal principles of interpretation such as the contra proferentum

Limitation and exclusion clauses restrict a party’s contractual obligations or legal remedies. Parties should not lightly to be taken to have limited their rights or remedies without clear wording to that effect.

As such, although there is no special rule or presumption that exclusion clauses should necessarily be interpreted narrowly (and any such suggestion should be weighed against the important principle of freedom of contract [5]), that may be appropriate in some cases.

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